What does ESG stand for?

ESG stands for Environmental, Social, and Governance. It refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business.

Why is ESG important?

ESG factors are important because they help investors, stakeholders, and the community assess the long-term sustainability and ethical impact of a company’s operations. Companies that prioritize ESG considerations are more likely to create value for all stakeholders and contribute to a more sustainable future.

What are some examples of ESG initiatives?

Examples of ESG initiatives include reducing carbon emissions, promoting diversity and inclusion in the workplace, ensuring ethical supply chain practices, and maintaining transparent governance structures.

How can companies incorporate ESG into their operations?

Companies can incorporate ESG into their operations by setting specific targets and goals related to environmental impact, social responsibility, and governance practices. They can also report on their ESG performance, engage with stakeholders, and continuously improve their sustainability efforts.

What are the benefits of ESG for investors?

Investing in companies with strong ESG practices can lead to better long-term financial performance, reduced risk exposure, enhanced reputation, and alignment with ethical values.

How can companies improve their ESG performance?

Companies can improve their ESG performance by integrating sustainability into their business strategy, engaging with stakeholders, conducting regular ESG assessments, and implementing best practices in environmental, social, and governance areas.

What is CSDDD

The Corporate Sustainability Due Diligence Directive (CSDDD) promotes sustainable corporate behaviour by integrating human rights and environmental considerations into operations and governance. It mandates that businesses address the adverse impacts of their actions throughout their value chains, both within and outside Europe. Companies must report on their due diligence activities and develop plans aligning their strategies with the Paris Agreement’s global warming limits. Informed by international guidelines, CSDDD reflects a trend towards greater corporate responsibility and aligns with the Corporate Sustainability Reporting Directive (CSRD) for consistent sustainability reporting across the EU.

Who is Impacted?

The Directive applies to two main categories of companies:

Large EU-based Companies: Approximately 6,000 large, limited liability companies and partnerships within the EU that have more than 1,000 employees and a global net turnover exceeding €450 million.

Large Non-EU Companies: Around 900 large companies based outside the EU but with a net turnover greater than €450 million within the EU.

Value Chain Business Partners: Although small and medium-sized enterprises and other non-EU companies are not directly covered, they will be indirectly impacted as business partners within the value chain will need to be aware of and comply with CS3D obligations.

For textile exporters, the Corporate Sustainability Due Diligence Directive (CSDD) is crucial for several reasons:

1. Sustainability and Human Rights: The CSDD establishes a framework for mandatory human rights and environmental due diligence (mHREDD). Companies must take measures to prevent, mitigate, or end impacts on rights defined in international human rights agreements.
2. Environmental Impact: The Directive mandates that companies address negative environmental impacts that violate multilateral environmental conventions. This is particularly important for the textile industry, which has a substantial environmental footprint.
3. Regulatory Compliance: The CSDD imposes extensive reporting requirements on all companies operating in the EU. It applies to large EU limited liability companies, including those in high-impact sectors like textiles. Non-EU companies generating significant turnover in the EU are also subject to these requirements.
4. Supply Chain Transparency: Companies must evaluate their environmental and social risks throughout their supply chains and implement climate transition plans. Textile exporters will need to ensure transparency and sustainability in their supply chains to comply with the Directive.

What requirement must be fulfilled under the Corporate Sustainability Due Diligence Directive (CSDDD)?

The CSDDD mandates extensive due diligence requirements, following a risk-based strategy, which are in sync with globally recognized frameworks like the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. The requirement for companies includes:

• Integration: The CSDDD compels companies to embed responsible business conduct throughout their policies and management systems, ensuring a holistic approach.
• Impact Assessment: Companies need to proactively identify and prioritize potential negative human rights and environmental impacts associated with their operations and supply chains.
• Action and Remediation: The directive requires taking steps to prevent, minimize, or stop such adverse impacts. Additionally, companies must provide compensation when necessary.
• Meaningful Stakeholder Engagement: Meaningful communication and grievance mechanisms are essential for involving stakeholders and addressing concerns.
• Monitoring and Transparency: Regular monitoring of implemented measures and public reporting on due diligence efforts ensure accountability.

The scope of the CSDDD extends beyond a company’s direct operations to include subsidiaries and business partners, promoting responsible practices throughout the entire value chain. The exemption for product disposal and indirect downstream partners highlights specific areas not covered by the directive.

The inclusion of a mandatory climate transition plan aligned with the Paris Agreement further strengthens the CSDDD’s commitment to environmental sustainability.

How does CSDDD align with other legislation that focuses on corporate responsibility and supply chain due diligence?

The Corporate Sustainability Due Diligence Directive (CSDDD) is closely related to other supply chain due diligence laws like the German Lieferkettengesetz and Norwegian Åpenhetsloven. These laws share common goals of promoting responsible business conduct, protecting human rights, and addressing environmental concerns in supply chains.

CSDDD, along with these national laws, requires companies to conduct due diligence to prevent and mitigate negative human rights, environmental, and climate impacts. They integrate human rights and environmental considerations into company operations and governance, aligning with international guidelines such as the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights.

These regulations also complement the Corporate Sustainability Reporting Directive (CSRD), which mandates comprehensive sustainability reporting, and reference International Labour Organisation (ILO) conventions to ensure fair labor practices.

Although similar in goals, each legislation has specific focuses based on national priorities. Companies operating across multiple jurisdictions must comply with the relevant laws to ensure responsible and sustainable business practices in their supply chains.

What impact does the CSDDD have on textile exporters?

The Corporate Sustainability Due Diligence Directive (CSDDD) is expected to have a significant impact on textile exporters, particularly those operating within the European Union (EU) or supplying goods to EU markets. Textile exporters will need to comply with the due diligence requirements outlined in the directive to prevent and mitigate negative human rights, environmental, and climate impacts in their supply chains.

Key impacts on textile exporters may include:

Increased Compliance Costs: Textile exporters will need to invest resources in implementing effective due diligence processes, conducting risk assessments, and monitoring their supply chains to ensure compliance with the CSDDD requirements.

Supply Chain Transparency: Textile exporters will be required to enhance transparency in their supply chains by identifying and addressing potential risks related to forced labor, child labor, environmental damage, and other forms of exploitation.

Market Access: Compliance with CSDDD requirements will be essential for textile exporters to maintain access to the EU market. Non-compliance may result in penalties, sanctions, or restrictions on market access.

Reputation and Brand Image: Adhering to responsible business practices and demonstrating commitment to sustainability can enhance the reputation and brand image of textile exporters. Conversely, failure to comply with CSDDD may lead to reputational damage and loss of consumer trust.

Competitive Advantage: Textile exporters that proactively address human rights and environmental issues in their supply chains may gain a competitive advantage by differentiating themselves as responsible and ethical suppliers.

How should companies report under the Corporate Sustainability Due Diligence Directive (CSDDD)?

The Corporate Sustainability Due Diligence Directive (CSDDD) does not prescribe a specific reporting format for companies. Unlike the Corporate Sustainability Reporting Directive (CSRD), which has a standardized reporting format, CSDDD requires companies to publicly disclose their due diligence processes and activities. Companies have the option to include details about their due diligence efforts within existing sustainability reports or to create separate reports dedicated to their supply chain due diligence practices. The main requirement is to transparently communicate the steps taken to identify and mitigate risks related to human rights, environmental impacts, and climate considerations in their supply chains.

Clear and comprehensive reporting enables companies to demonstrate their commitment to responsible business practices and compliance with CSDDD. This transparency is crucial for stakeholders such as investors, consumers, regulators, and civil society to evaluate the company’s efforts in promoting sustainability and addressing social and environmental challenges in their operations and supply chains.

What is included in the framework?

The framework of the Corporate Sustainability Due Diligence Directive (CSDDD) encompasses several key elements aimed at promoting responsible business conduct and addressing human rights, environmental, and climate-related risks in global supply chains. Some of the components included in the framework are:

Corporate Due Diligence Duty: The CSDDD establishes a corporate due diligence duty for companies to identify, prevent, mitigate, and account for negative human rights and environmental impacts in their operations, subsidiaries, and value chains.

Alignment with International Standards: The directive aligns with internationally recognized human rights and environmental conventions and standards, such as the ILO Fundamental Conventions, OECD Guidelines for Multinational Enterprises, OECD Due Diligence Guidance for Responsible Business Conduct, and UN Guiding Principles on Business and Human Rights.

Paris Agreement Compatibility: Larger entities falling within specified groups are obligated to ensure that their business operations and strategies are compatible with the goals of limiting global warming in line with the 2015 Paris Agreement.

Supply Chain Risk Assessment: Companies are expected to consider a wide range of human rights, environmental, and climate-related risks associated with their operations, particularly those present within their supply chains. This includes identifying and addressing issues like forced labor, child labor, and environmental damage.

Sustainable Business Practices: The directive aims to promote sustainable and ethical business practices by encouraging companies to take responsibility for their supply chains and ensure that their operations are conducted in a manner that respects human rights and protects the environment.

Reporting and Transparency: Companies are required to report on their due diligence activities and efforts to address human rights and environmental risks in their supply chains. Transparency in reporting is essential for stakeholders to assess the company’s sustainability performance and compliance with the CSDDD requirements.

Is the CSDDD mandatory legislation?

Yes, the CSDDD is mandatory legislation. It requires companies to comply with its due diligence requirements to prevent and mitigate negative human rights, environmental, and climate impacts within their operations and supply chains.

What is the significance of CSDDD?

CSDDD holds significance for various reasons:

1. Human Rights Protection: The directive safeguards human rights by mandating companies to identify and mitigate risks like forced labor and child labor in their supply chains, ensuring accountability and protection for vulnerable workers and communities worldwide.
2. Environmental Preservation: It also contributes to environmental protection by compelling companies to address environmental harm caused by their operations or suppliers, fostering sustainable business practices and reducing the environmental impact on local communities.
3. Ethical Business Practices: CSDDD promotes ethical business conduct by enforcing compliance with international guidelines like the OECD Guidelines for Multinational Enterprises and OECD Guidance for Responsible Business Conduct, fostering fair competition and sustainable economic development.
4. Adherence to International Norms: Aligned with international norms such as the UN Guiding Principles on Business and Human Rights and ILO Fundamental Conventions, the directive ensures that due diligence processes reflect common global standards, fostering a shared understanding of corporate responsibilities towards human rights and the environment in global supply chains.

 What are the consequences if a company does not comply with the CSDDD?

If a company does not comply with the Corporate Sustainability Due Diligence Directive (CSDDD), it could face significant consequences. The penalties imposed by relevant authorities may include fines, restrictions on market access, or other regulatory measures. Specifically, sanctions can include fines up to 5% of the company’s net global turnover and the company may potentially face civil liability for non-compliance. Therefore, it’s crucial for companies to comply with the CSDDD to avoid these legal repercussions and continue their operations within the European Union market.

What is the timeline for the implementation of the CS3D?

Once published in the European Union Official Journal in 2024, the CS3D will undergo a phased implementation over a three-year period. This phased approach will be based on specific thresholds outlined in the directive.

Benefits of Compliance:

• Reducing Legal Risks: Robust due diligence lowers the risk of lawsuits.
• Enhancing Investor Confidence: Commitment to sustainability attracts investors.
• Strengthening Brand Reputation: Positive impact on brand trust and loyalty.
• Driving Innovation: Sustainable practices can lead to innovation and efficiency gains.

What are Human Rights Due Diligence (HRDD) according to the OECD Guidelines?

HRDD refers to the process through which multinational enterprises identify, prevent, mitigate, and account for how they address their impacts on human rights.

Human Rights Due Diligence is crucial for Indian textile exporters to identify and address potential human rights risks in their supply chains, such as forced labor, child labor, and unsafe working conditions

Why is Human Rights Due Diligence important for multinational enterprises?

HRDD is crucial for identifying and addressing potential human rights risks and impacts associated with business operations, products, and services. It helps prevent human rights violations and contributes to sustainable development.

What are the key steps involved in conducting Human Rights Due Diligence?

The key steps include assessing actual and potential human rights impacts, integrating findings into policies and procedures, tracking performance, and providing remedies for adverse impacts.

How can Indian textile exporters conduct Human Rights Due Diligence in their supply chains? 

Indian textile exporters can conduct HRDD by mapping their supply chains, conducting risk assessments, engaging with suppliers and workers, implementing grievance mechanisms, and monitoring compliance with human rights standards.

Are there specific guidelines or tools available to support the implementation of Human Rights Due Diligence?

The OECD provides guidance on HRDD through the Guidelines for Multinational Enterprises, which include recommendations and best practices for conducting due diligence to respect human rights.

What are the potential benefits of implementing Human Rights Due Diligence?

Benefits include enhanced reputation, reduced legal risks, improved relationships with stakeholders, increased trust from consumers, and alignment with international standards and expectations.

How can Indian textile exporters integrate Human Rights Due Diligence into their business operations?

Enterprises can integrate HRDD by developing human rights policies and procedures, providing training to employees and suppliers, conducting regular audits, and collaborating with industry associations and civil society organizations.

How can stakeholders, including workers, communities, and civil society organizations, be involved in the Human Rights Due Diligence process?

Stakeholders can provide valuable input on human rights risks and impacts, participate in consultations, raise awareness about human rights issues, and hold enterprises accountable for their actions.

What are the consequences of failing to conduct Human Rights Due Diligence for multinational enterprises?

Failure to conduct HRDD can result in reputational damage, legal liabilities, loss of trust from stakeholders, and negative impacts on affected individuals and communities.

How can multinational enterprises integrate Human Rights Due Diligence into their overall business strategy?

Enterprises can integrate HRDD by embedding human rights considerations into decision-making processes, establishing clear policies and procedures, and fostering a culture of respect for human rights throughout the organization.

Where can exporters find additional resources and support for implementing Human Rights Due Diligence?

Multinational enterprises can access tools, case studies, and guidance on HRDD from the OECD website, the National Contact Points, and other relevant organizations working on human rights and responsible business conduct.

How does Human Rights Due Diligence align with international standards and frameworks?

HRDD aligns with international standards such as the UN Guiding Principles on Business and Human Rights, which outline the corporate responsibility to respect human rights and provide guidance on conducting due diligence. In India aligns with the Business Responsibility and Sustainability Reporting (BRSR) framework. Introduced by SEBI, BRSR mandates companies to disclose their sustainability performance, including human rights practices. This framework integrates principles from the National Guidelines on Responsible Business Conduct (NGRBC), mirroring global standards. By implementing HRDD, Indian companies can identify, prevent, mitigate, and account for human rights impacts, ensuring transparency, accountability, and alignment with international best practices, thereby enhancing their global reputation and compliance.

Can Human Rights Due Diligence help prevent and address human rights abuses in global supply chains?

Yes, HRDD can help multinational enterprises identify and address human rights risks in their supply chains, including issues related to forced labor, child labor, discrimination, and environmental degradation.

How can Human Rights Due Diligence contribute to building trust and credibility with stakeholders?

By demonstrating a commitment to respecting human rights through HRDD, enterprises can build trust with stakeholders, including investors, customers, employees, communities, and civil society organizations.

Are there specific sectors or industries where Human Rights Due Diligence is particularly important?

HRDD is important across all sectors and industries, but it may be especially critical in sectors with high human rights risks, such as extractives, agriculture, manufacturing, technology, and construction.

What are some common challenges and opportunity in implementing Human Rights Due Diligence?

Challenges may include limited resources and capacity, complex supply chains, cultural differences, lack of awareness or understanding of human rights issues, and difficulties in engaging with marginalized or vulnerable groups.

How can enterprises ensure that Human Rights Due Diligence is an ongoing and iterative process?

By regularly reviewing and updating their HRDD processes, monitoring changes in the operating environment, engaging with stakeholders, and learning from past experiences, enterprises can ensure that HRDD remains effective and responsive.

What are some best practices for communicating the results of Human Rights Due Diligence to stakeholders?

Enterprises can communicate the results of HRDD through transparent reporting, engagement with affected communities, participation in multi-stakeholder initiatives, and integration of human rights considerations into public disclosures.

How can enterprises leverage technology and data analytics to enhance Human Rights Due Diligence efforts?

By using technology and data analytics, enterprises can improve the efficiency and effectiveness of HRDD, identify trends and patterns in human rights risks, and track the impact of their actions on human rights outcomes.

Where can enterprises access training and capacity-building resources on Human Rights Due Diligence?

Enterprises can access training programs, workshops, webinars, and online resources on HRDD from the industry associations, non-governmental organizations, OECD and academic institutions specializing in business and human rights.